Best Stop Loss Order Strategy

Indices Stop Loss Order

Stop Loss Order is a type of order which is placed after opening a trade that is designed to minimize losses if the market trend goes against you.

Stop Loss Order is a pre-determined point of getting out of a losing trade and it's meant to control losses in stock indices trading.

A stop loss is an order placed with your broker that will automatically close your open trade order when the stock price of your open trade order reaches a predetermined price. When set level is reached, your open trade is liquidated.

These stock orders are designed to cap the sum of money which trader can lose: by exiting the trade order if a specific price that is against the trade is reached.

For example, one may open a buy trade & put a stop loss of 20 pips, if the stock price moves against the trader by 20 pips the stop loss stock order will be filled & the trade will be liquidated thereby limiting the loss to 20 points (pips) - Setting Stop Loss Order Techniques.

Regardless of what you may be told by other stock traders, there's no question about whether these stop loss stock orders should or should not be used - stop loss stock orders should always be used.

One of most troublesome things in stock indices trading is setting these stop losses - Best Stop Loss Order Strategy Method - Best Stop Loss Order Strategy for Trading. Put the stop loss stock order too close to your entry stock price and you're liable to exit the trade due to random volatility. Place the stop loss stock order too far away and if you are on the wrong side of the trend, then a small loss could turn into a big loss.

Critics will point out several disadvantages of these stop loss orders: that by placing them you are guaranteeing that if should your open trade position move in wrong direction, you'll end up selling at lower prices, not higher.

Skeptics will also argue that in setting stop loss orders you are vulnerable to exit a trade order just before the market moves in your favor. Most traders have had the experience of setting a these stop loss stock orders and then seeing the stock price retrace to that stop-loss level, or just a few points below it, & then go in the direction of their original market trend analysis. What may have been a profitable trading instead turns into a loss.

Professional traders always use stop loss stock orders as they are an important part of discipline required to succeed in indices trading because stop loss stock orders can prevent a small loss from becoming a big loss. What's more, by ardently placing these stop loss stock orders whenever you enter a trade position, you end up making this important decision at the point in time when you are most objective about what is really happening with market, this is because most objective technical analysis is done before opening a trade order. After entering market a trader will tend to analyze the stock trading market differently because they now have a bias towards one side of stock trading market, the direction of their analysis - Best Stop Loss Order Strategy for Trading.

Unexpected economic news reports can come out of the blue and dramatically affect the price: this is why it is so important to have a stop loss stock order set for your open trade. It's best to cut losses early when a trade is moving against you, it's best to cut your losses immediately rather than waiting for loss to become a big one. Again, if you set your stop loss stock orders when you're entering a trade, then that's when you're most objective as a trader - Best Stop Loss Order Strategy.

Best Stop Loss Stock Order Strategy for Trading

A key stock indices question is precisely where to set this stop-loss order. In other words, how far should you as a trader place this stop-loss below your purchase price? Many traders will tell you to set predetermined - maximum acceptable loss per trade, an amount depending on your account equity balance rather than use technical indicators for calculating where to place the stop loss stock order - Best Stop Loss Order Strategy for Trading.

Professional money managers advice that you shouldn't lose more than 2 percent of your account equity on one single trade order. If you have $10,000 in capital, then that would mean that the maximum loss you should set for any one trade order is $200 - Best Stop Loss Order Strategy.

If you open a trade then that would mean that you would limit your risk to no more than $200 for that particular trade. In which case you would set your stop loss order at 200 or equivalent number of pips based on your position size of trade that you've opened - Stop Loss Order Example - Stop Loss - Stop Loss Order Calculator. The topic of risk management is a wide topic & it's discussed under learn equity management lessons.

• Stock Funds Management Lesson - What to Consider When Placing Stop Loss
• Stock Money Management Methods - Stop Loss Order Example - Stop Loss - Stop Loss Order Calculator

Stock Stop Loss Order

The most important question is how close or how far this stop loss stock order should be set from the stock price where you entered the trade. Where you set the stop loss stock order will depend on several factors:

Because there are no guidelines cast in stone as to where you should place these stop loss stock orders on a chart, we follow general stop loss stock order setting guidelines used to help place these stoploss orders in the correct way.

Some of general stop loss stock order setting guidelines used are:

1. Risk Percentage - How much is one willing to lose on a single trade order. The general stop loss trading order setting rule is that a trader should never lose more than 2 percent of the total indices account capital on any single trade order.

2. Market Volatility -market volatility refers to the daily stock price range movement of instrument that you're trading. If a instrument routinely moves up and down in a range of 50 pips or more over the course of the day, then you can't set tight stop loss when you open a trade. If you do, you will be taken out of the trade by the normal market volatility.

3. Risk:Reward Ratio - this is measure of potential risk : reward calculated before opening a trade transaction. If the market conditions are favorable then it's possible to comfortably give your trade more room. However, if the stock trading market is too range bound it then becomes too risky to open a trade order without a tight stop loss - then don't make the trade at all. The risk to reward ratio isn't in your favor & even setting tight stop loss stock orders will not guarantee profitable trading results. It would be wiser to search for a better trade to next time.

4. Trade Position Size - if trading size executed is too large then even the minimum decimal stock price movement will be fairly big in risk percentage terms. This means that you have to set a tight stop-loss for your trade which might be taken out more easily. In most cases it is better to adjust to a smaller trade size so as to give your trade more space for stock price volatility movement, by setting a reasonable stop loss level for this stop loss stock order while at the same time reducing the risk for the trade.

5. Account Equity Capital - If your stock account is under-capitalized then you'll not be able to set your stop loss orders accordingly, because as an investor you'll have a large amount of money that is invested in one single trade position which will force you to set very tight stop loss trading orders. If this is the scenario, you should consider very seriously about if you have adequate trading capital to trade Stock Indices in the first place.

6. Market Trend Conditions - If the stock price is trending upwards, a tight stop might not be necessary. If on the other hand the stock price is choppy and has no clear trend direction then you should use a tight stop loss or not open any stock transactions at all.

7. Time Frame - the bigger the stock chart time-frame you use, the bigger the stop loss order level should be. If you were a scalper trader your stoploss orders would be tighter than if you were a day trader or a swing trader. This is because if you are using longer chart timeframes and you determine the stock price will be move up-wards it doesn't make sense to set a very tight stop loss because if the stock price swings just a little, your open order will be hit.

Best Stop Loss Order Strategy for Trading

The method of setting stop loss orders that you choose will significantly depend on what type of trader you are. Most oftenly used method to determine where to set stop loss trading orders is - resistance and support areas. These support & resistance levels give good points for setting these stop loss stock orders as they are most reliable levels to set stop loss stock orders, because the support & resistance zones will not be hit many times.

Indices Stop Loss Order

The technique of how to set these stop loss (SL) orders that you choose should also follow the stop loss trading order setting guide lines above, even if not all these guide-lines apply to your trading strategy try to implement the guide-lines which will apply to your trade strategy depending on what type of trader you are.

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